I've sometimes thought that if there were a "Roy's Insurance Company", I'd use the slogan, "Why Think? Thinking is Hard. We Insure Stupidity", to niche market companies and businesses that employ those kids from grade school who made the most trips to the local emergency room. You know, the type who created and acted in the 68th greatest show of the last 25 years, first on MTV, then two and a half times on the big screen, and reportedly coming soon to your local cineplex in 3D.

Bacardi 151 Bottle with Flame Arrester

Back in March 2008, Brother Jimmy's BBQ would have been my company's kind of risk. Its Upper West Side Manhattan location, to be precise. Apparently, when Jerry Lee Lewis' rendition of the early rock classic "Great Balls of Fire" would play on the jukebox, the bartender at Brother Jimmy's would pour Bacardi 151 rum (75.5% ethanol) on the bar and light it on fire. Unfortunately for 31-year-old financial industry worker Lauren Sclafani, who was seated at the bar with a client to watch some NCAA March Madness basketball, the stunt went horribly wrong when the flame blew back into the bottle (sans its metallic flame arrester?) and turned it into a flamethrower, dousing Sclafani's face, arms and hands with burning rum. After spending three weeks in a burn center for treatment of second- and third-degree burns, Sclafani sued both Brother Jimmy's and Bacardi under theories of negligence and of strict products liability, alleging, among other things, that Bacardi 151 was “defective, hazardous, unreasonably dangerous, and not [a] reasonably safe product.”

But Roy's Insurance Company did not insure Brother Jimmy's in March 2008, Illinois National Insurance Company did, at least under a commercial umbrella liability policy. When Illinois National allegedly refused to defend the Brother Jimmy's defendants in the underlying Sclafani personal injury action, the Brother Jimmy's entities commenced this declaratory judgment action against Illinois National, American International Group, Inc. (AIG), AIG Domestic Claims, Inc. (AIGDC), various Bacardi entities, and Sclafani.

The Bacardi defendants moved pursuant to CPLR 3211(a)(7) to dismiss plaintiffs' amended complaint against them, contending that they were not necessary parties to this DJ action, were strangers to the plaintiffs' insurance contract with Illinois National, and would not be inequitably affected by a judgment rendered in this action. Plaintiffs opposed the Bacardi defendants' motion, arguing that they might be "inequitably affected" by a judgment in this action and, as such, were necessary parties because the aggregate total of collectible insurance policies may influence the trial strategy of plaintiff in the underlying action and because there was the potential for joint and several liability in that action.

In GRANTING the Bacardi defendants' motion to dismiss, New York County Supreme Court Justice Emily Jane Goodman reasoned:

Necessary parties are “[p]ersons who ought to be parties if complete relief is to be accorded between the persons who are parties to the action or who might be inequitably affected by a judgment in the action . . .” (CPLR 1001 [a]; see generally 1-7 Weinstein-Korn-Miller, CPLR Manual 6 7.02). Here, Bacardi is not a necessary party to this action. Plaintiffs do not allege that Bacardi is an insured under the subject policy. Moreover, Bacardi’s potential liability in the underlying action has no bearing on Brother Jimmy’s coverage or the interpretation of the insurance policy. Accordingly, Bacardi’s motion to dismiss must be granted (see Mayer's Cider Mill, lnc. v Preferred Mut, Ins. Co., 63 AD3d 1522, 1523-1524 [4th Dept 2009] [manufacturer and distributor of machine were not necessary parties in insured’s declaratory judgment action against insurer for defense and indemnification in underlying personal injury action]; Silverman v State Farm Fire & Cas. Co., 22 Misc 3d 591, 596 [Sup Ct, Nassau County 2008] [insurer’s motion to dismiss for failure to join former employee (the plaintiff in the underlying action) and her husband as necessary parties was denied; “(g)iven the essential nature of this case, these individuals, strangers to the insurance contracts at issue, are not necessary for any of the current parties to obtain complete relief”]).

AIG and AIGDC moved to dismiss plaintiffs' amended complaint on the ground that they were not parties to the commercial umbrella policy and, thus, plaintiffs lacked privity of contract with them. They further contended that as the parent corporation of Illinois National, AIG could not be held liable for any breach of contract by its affiliates or subsidiaries, and that AIGDC merely acted as a claims administrator for Illinois National. Plaintiffs opposed that motion on various procedural and substantive grounds.

Here, the subject policy states that Illinois National was the insurer that issued the policy (Greensfelder Affirm., Exh. A, Declarations Page). The court must, therefore, consider whether AIG may be held liable for a breach of contract by its affiliates or subsidiaries.

Generally, a party seeking to pierce the corporate veil must show: (1) complete domination and control of the subsidiary by the parent with respect to the transaction at issue; and (2) that such domination was used to commit a fraud or wrong against the plaintiff that resulted in the plaintiff's injury (see Matter of Morris v New York State Dept. of Taxation & Fin. , 82 NY2d 135, 141 [1993]; Do Gooder Prods., Inc. v American Jewish Theatre, Inc., 66 AD3d 527, 528 [1st Dept 2009]; Eastern States Elec. Contrs. v Crow Constr. Co., 153 AD2d 522, 523 [1st Dept 1989]). Notably, “[elvidence of domination alone does not suffice without an additional showing that it led to inequity, fraud, or malfeasance’’ (TNS Holdings v MKI Sec. Corp., 92 NY2d 335, 339 [1998]).

In Town of Smithtown v National Union Fire Ins. Co. (191 AD2d 426 [2d Dept 1993]), the plaintiffs commenced a declaratory judgment action seeking a declaration that their insurers were obligated to defend them in four actions brought by various school districts. The subject policy was issued by National Union Fire Insurance Company, a subsidiary of AIG. The Court held that “the plaintiffs have failed to allege or tender proof that the parent company, American International Group, Inc., exercised complete dominion and control over National Union Fire Insurance Company in this matter. Thus, liability of the parent company for the contractual obligations of its subsidiary may not be imposed” (id. at 428).

In the instant case, Brother Jimmy’s does not have a viable cause of action against AIG. Brother Jimmy’s fails to allege that AIG exercised complete dominion and control over Illinois National. Moreover, Brother Jimmy’s has failed to remedy this defect in opposition to the motion. AIG is a holding company for Illinois National, and had no involvement in the investigation or denial of plaintiffs’ claims under the policy (Mofsenson Aff., 3, 5).

Nor is there a basis for AIGDC’s liability in this declaratory judgment action. It is well established that “an agent for a disclosed principal ‘will not be personally bound unless there is clear and explicit evidence of the agent’s intention to substitute or superadd his personal liability for, or to, that of his principal”’ (Savoy Record Co. v Cardinal Export Corp., 15 NY2d 1, 4 [1964], quoting Mencher v Weiss, 306 NY 1,4 [1953]; see alsoNews Am. Mkfg., Inc. v Lepage Bakeries, Inc., 16 AD3d 146, 147 [1st Dept 2005]; Crimmins v Handler & Co., 249 AD2d 89, 91-92 [1st Dept 1998]). Here, as noted above, the policy states that Illinois National was the company issuing the policy. AIGDC was not a party to the insurance contract, and there is no evidence that AIGDC intended to substitute its own liability for that of Illinois National. In addition, the January 9, 2009 disclaimer letter from AIGDC to Brother Jimmy’s NYC Restaurant Holdings, LLC states that “[AIGDC] is the claims administrator on behalf of Illinois National Insurance Company (‘Illinois National')" (Cooper Affirm., Exh. 1 [emphasis supplied]). Thus, AIGDC was acting as agent for Illinois National for purposes of claims administration.

Brother Jimmy's pulled all Bacadi 151 bottles from its bars the day after the accident happened.

Wednesday, May 26, 2010

I don't. Most people don't. Except perhaps that like most people, I've surmised that my agent makes a commission or percentage of the premiums I pay for the policies he procured for me and my business. I only know for certain that I've never written a check directly to my insurance agent.

Regular Commissions -- averaging 12.5% of total premiums on all business the agent produces for insurers. Life insurance commissions are usually much higher on the first-year premium.

Contingent Commissions -- tied to the loss and claim payment results realized by the insurers the producer represents on the total business it places with those insurers during the prior year.

Policy Fees -- the producer negotiates and charges the insured, including for services provided other than policy placement, such as risk management, engineering, or premium financing.

Interest and Countersignature Income -- In instances where customers pay for insurance policies through the agency (instead of by direct payment to the insurer which issued the policy), the agency may receive a modest amount of income from interest accruing on amounts held for payment to insurers. In addition, the agency charges interest on past-due receivables from these agency-bill customers. In increasingly rare instances, state law requires a resident agent to receive a commission for countersigning a policy issued by an agent from another state.

Notice that contingent or sometimes called bonus commissions relate directly to losses and claims the agent's or broker's customers submit and are paid for each year. It is this type of compensation that sometimes causes agents and brokers to advocate for the denial of their customers' claims.

Enter the New York State Insurance Department, which earlier this year promulgated Regulation 194 (11 NYCRR Part 30), the stated purposes of which are:

(a) to implement the New York Insurance Law by regulating the acts and practices of insurers and insurance producers with respect to transparency of compensation paid to insurance producers and their role in insurance transactions in this State; and

(b) to protect the interests of the public by establishing minimum disclosure requirements relating to the role of insurance producers and the compensation paid to insurance producers.

Set to take effect on January 1, 2011, the new regulation will require an insurance producer who is subject to the New York Insurance Law and sells an insurance contract to disclose the following information to the purchaser orally or in a prominent writing at or prior to the time of application for the insurance contract:

(1) a description of the role of the insurance producer in the sale;

(2) whether the insurance producer will receive compensation from the selling insurer or other third party based in whole or in part on the insurance contract the producer sells;

(3) that the compensation paid to the insurance producer may vary depending on a number of factors, including (if applicable) the insurance contract and the insurer that the purchaser selects, the volume of business the producer provides to the insurer or the profitability of the insurance contracts that the producer provides to the insurer; and

(4) that the purchaser may obtain information about the compensation expected to be received by the producer based in whole or in part on the sale, and the compensation expected to be received based in whole or in part on any alternative quotes presented by the producer, by requesting such information from the producer.

If the purchaser requests more information about the producer's compensation before the issuance of the insurance contract, the producer shall disclose the following information to the purchaser in a prominent writing at or prior to the issuance of the insurance contract, except that if time is of the essence to issue the
insurance contract, then within five business days:

(1) a description of the nature, amount and source of any compensation to be received by the producer or any parent, subsidiary or affiliate based in whole or in part on the sale;

(2) a description of any alternative quotes presented by the producer, including the coverage, premium and compensation that the insurance producer or any parent, subsidiary or affiliate would have received based in whole or in part on the sale of any such alternative coverage;

(3) a description of any material ownership interest the insurance producer or any parent, subsidiary or affiliate has in the insurer issuing the insurance contract or any parent, subsidiary or affiliate;

(4) a description of any material ownership interest the insurer issuing the insurance contract or any parent, subsidiary or affiliates has in the insurance producer or any parent, subsidiary or affiliate; and

(5) a statement whether the insurance producer is prohibited by law from altering the amount of compensation received from the insurer based in whole or in part on the sale.

the Insurance Department does not have authority under New York law to mandate compensation disclosure;

the regulation “represents an impermissible attempt to rewrite the Insurance Law on a subject as to which the Legislature has already specifically legislated”;

parts of the regulation “impose massive and unwarranted costs of compliance on brokers so as to constitute an arbitrary exercise of regulatory power”; and

the regulation violates producers’ rights to due process and equal protection under the U.S. and New York State Constitutions.

According to IIABNY's press release, IIABNY called on insurance agents and brokers in 2004 to voluntarily disclose to their clients the existence and nature of all their compensation. I like my agent very much but have never received any disclosure -- oral or written -- of the compensation his agency derives from my business. What could have been voluntary the Insurance Department now seeks to make mandatory. Coverage Counsel will follow the Article 78 proceeding and report its outcome.

Jamille Andrews intentionally drove Cheryl Holt's car into Shekenah, Shadrach and Shekeila Campbell, injuring them. Andrews subsequently was charged criminally and pleaded guilty to three counts of assault in the second degree arising from the incident, admitting that she had intentionally struck the Campbells.

The Campbells made third-party BI claims to Holt's auto insurer, Lincoln General, which denied liability coverage based on Andrews' intentional act. The Campbells then filed uninsured motorists (UM) coverage claims with their mother's auto insurer, Travelers, which similarly denied UM coverage because their injuries were caused by Andrews' intentional criminal acts rather than an accident and because the Holt vehicle did not constitute an "uninsured motor vehicle" within the meaning of their mother's auto policy. The Campbells demanded arbitration of their UM claim and Travelers commenced this special proceeding for a permanent stay of that arbitration.

In REVERSING the Orange County Supreme Court's order that had denied and dismissed Traveler's petition, the Appellate Division, Second Department, held:

Monday, May 24, 2010

I am an attorney, and I regularly represent insurance companies. Apparently in the view of some, like the two gentlemen I spoke with this afternoon, that puts me in disreputable company.

People with insurance coverage questions or involved in insurance coverage disputes who surf the Internet looking for answers sometimes find their way to this blog, and some of them call or email me. Like James from New York, who inquired this afternoon about where he might find some more case law or legal treatise resources on a particular issue of New York insurance law.

I read James's email and considered not responding. After all, he, like the others who send unsolicited emails to me, should have no expectation that I will take the time to respond. But I did. Respond. Nothing too crazy. Just some links to some posts within these pages, instructions on navigating to Subpart 60-2 of Title 11 of New York's insurance regulations, and a perfunctory disclaimer that my reply did not constitute legal advice or create an attorney-client relationship.

Two hours later James's perception intersected with my reality. He replied with a thank you email, which began:

This is great and quite wonderful of you. Are you sure you are an attorney? I can't remember when I have been so informed and kindly treated by a member of your profession.

Ouch. Really? If James has had much interaction with attorneys in the past, his compliment to me serves also as an indictment of the legal profession. And regardless of the accuracy of that perception, its very existence should be troubling to all who have attained membership to the bar.

Less than an hour later I returned a telephone call to Steven from California, who owns rental property in Buffalo and had a question about vandalism coverage. In describing the background of his loss and very first property insurance claim, he told me of a telephone conversation he had had with his insurance agent -- bearing the same company name as his insurer -- earlier today. In response to Steven's remark that it seemed to him that his insurer was looking for grounds to deny his claim, his agent said, "Don't all insurance companies look for a way to deny coverage?"

Ouch. Really? If that's the perception of even producing agents, insurers should be concerned. I know no one who likes paying insurance premiums, but when the consuming public think insurers look to deny rather than pay their claims, something's wrong. And as with James's perception of attorneys, the very existence of what is now Steven's perception of insurers should be troubling to insurance companies.

The last slide of every single one of my PowerPoint presentations on insurance coverage and fraud topics reads:

Remember, the glass is half full,

not half empty.

Seek to determine whether payment

can be made, not denied.

When it comes to attorneys, insurance companies, and insurance company attorneys, perception should not necessarily equal reality.

Fireman's Fund issued a commercial general liability insurance policy to U.S.A. Interior, LLC (USAI), that contained an additional insured endorsement, which added to the insured persons covered under the subject policy

any entity the Named Insured is required in a written contract to name as an insured ... but only with respect to liability arising out of work performed by or on behalf of the Named Insured for the Additional Insured. (Emphasis added.)

Plaintiff entered into a construction contract with USAI pursuant to which USAI was to perform demolition work at certain premises owned by the plaintiff. The only written agreements between USAI and the plaintiff pertaining to the project were a one-page proposal from USAI specifying the bid price and work to be performed and a hold harmless agreement. Pursuant to the hold harmless agreement, USAI, as the subcontractor, agreed to indemnify and hold harmless the plaintiff, as the owner, "from and against any and all claims, suits, liens, judgment, damages, losses and expenses arising in whole or in part ... from the acts, omissions, breach or default of [USAI] in connection with the performance of any work by or for [USAI]," except for claims arising from Hargob's own negligence.

Plaintiff commenced this declaratory judgment action for defense and indemnification coverage from Fireman's Fund in relation to an underlying personal injury action that presumably related to USAI's demolition work for plaintiff. In AFFIRMING Nassau County Supreme Court's order granting Fireman's Fund's motion for summary judgment, the Second Department held:

Hold Harmless Agreement: Notwithstanding USAI's written agreement to indemnify the plaintiff, the hold harmless agreement did not contain any requirement that USAI name the plaintiff as an additional insured under the subject policy and, thus, the additional insured endorsement of USAI's policy with Fireman's Fund was not applicable.

Certificate of Insurance: The USAI certificate of insurance proffered in opposition to Fireman's Fund's motion, listing the plaintiff as an additional insured under the subject policy, was insufficient to alter the language of the policy itself, especially since the certificate recited that it was for informational purposes only, that it conferred no rights upon the holder, and that it did not amend, alter, or extend the coverage afforded by the policy.

Timely Denial of Coverage: Fireman's Fund's denial of coverage under the additional insured endorsement constituted a denial based upon a "lack of inclusion" rather than "by reason of exclusion" and, thus, it was not required to deny coverage where none existed. Therefore, to the extent that the denial of coverage was based upon lack of coverage as an additional insured pursuant to the additional insured endorsement, a timely disclaimer was unnecessary.

Supplementary Payments Provision: The policy's supplementary payments provision, which obligated Fireman's Fund to defend an indemnitee of the named insured when certain specified conditions are met, did not also afford liability coverage. "Contrary to the plaintiff's contention, the supplementary payments provision did not demonstrate an intent by [Fireman's Fund] to afford the plaintiff coverage solely on the basis that it is an indemnitee of the named insured, in the absence of the plaintiff's addition as 'an insured' under Section II of the subject policy pursuant to the additional insured endorsement. (see Stainless, Inc. v Employers Fire Ins. Co., 69 AD2d at 33). Liability coverage under the policy is afforded by Section I, not the supplementary payments provision. Therefore, Hargob's status as an indemnitee does not operate to confer upon it status as an additional insured, and it is, thus, not entitled to liability coverage under the subject policy pursuant to the supplementary payments provision."

If under a liability policy issued or delivered in this state, an insurer shall disclaim liability or deny coverage for death or bodily injury arising out of a motor vehicle accident or any other type of accident occurring within this state, it shall give written notice as soon as is reasonably possible of such disclaimer of liability or denial of coverage to the insured and the injured person or any other claimant. (Emphasis added.)

Must the "written notice" of a liability insurer's disclaimer or denial always take the form of a letter, or can the insurer's commencement of a declaratory judgment action satisfy the written notice requirement?

In REVERSING the Suffolk County Supreme Court's order granting summary judgment against Blue Ridge Insurance Company, the Second Department reminded:

When the insured's liability is not in doubt and the nature of injuries it caused are such that a recovery will likely exceed the policy limit, is it actionable bad faith for a liability insurer to refuse or fail to enter into pre-litigation settlement discussions and negotiations? In the opinion of the Second Department, Appellate Division, no, not if there's been no pre-litigation settlement demand within policy limits, it isn't.

Lexington insured CBLPath, a medical diagnostic laboratory, under a $1,000,000 per medical incident medical malpractice liability policy. In March 2006, CBL negligently switched Darrie Eason's biopsy specimen with a biopsy specimen from another individual, which resulted in Eason being erroneously diagnosed with breast cancer, and subsequently undergoing an unnecessary double mastectomy.

From February 2007 through September 2007, Eason's counsel made several attempts to open settlement discussions, but Lexington, which in February 2007 had exercised its right as the sole authority to handle the Eason claim, never made a substantive response to those inquiries. Eason commenced a personal injury action against CBL in October 2007, and her counsel made her first settlement demand of $5,000,000 in December 2007. That action was settled several months later for the sum of $2,500,000, with Lexington paying the policy limit in the sum of $1,000,000 and CBL paying the balance.

CBL thereafter commenced this action against Lexington, asserting a single cause of action for breach of the covenant of good faith and fair dealing implied in the insurance contract. The gravamen of CBL's complaint was that Lexington, which had asserted sole control over the Eason claim, acted in bad faith by refusing to enter into pre-litigation settlement discussions with Eason's counsel. CBL sought actual and consequential damages, including, inter alia, injury to its business reputation, lost sales, increased sale expenses, lost profits, and lost business opportunities caused by the negative publicity that resulted from the commencement of the underlying action. After answering, Lexington moved for summary judgment dismissing the complaint, and CBL cross-moved to dismiss Lexington's affirmative defenses. The Supreme Court granted Lexington's motion and denied CBL's cross motion. CBL appealed, and the Second Department unanimously affirmed:

An insurer "may be held liable for the breach of its duty of good faith' in defending and settling claims over which it exercises exclusive control on behalf of its insured" (Pavia v State Farm Mut. Auto. Ins. Co., 82 NY2d 445, 452). The root of this doctrine is that, typically, an insurer exercises "complete control over the settlement and defense of claims against their insureds, and, thus, under established agency principles may fairly be required to act in the insured's best interests" (id.). However, since courts are understandably reluctant to expose insurers to liability exceeding the policy limits, the bad faith must be for conduct that is clearly more than ordinary negligence, i.e., more than merely poor judgment (id. at 453).

"Naturally, proof that a demand for settlement was made is a prerequisite to a bad-faith action for failure to settle. [Additionally,] the plaintiff in a bad-faith action must show that the insured lost an actual opportunity to settle the . . . claim at a time when all serious doubts about the insured's liability were removed.

Here, Lexington met its prima facie burden of establishing its entitlement to judgment as a matter of law (see Alvarez v Prospect Hosp., 68 NY2d 320, 324; Zuckerman v City of New York, 49 NY2d 557, 562) by submitting, inter alia, an affirmation of an AIGDC attorney who had handled the Eason claim. In that affirmation, the attorney stated that Eason's counsel did not issue the first settlement demand until after commencement of the underlying action, and that once such demand was made, negotiations ensued, and a settlement was reached, with Lexington paying the policy limit in the sum of $1,000,000, and CBL responsible for the balance in the sum of $1,500,000. Thus, Lexington established that CBL's bad faith claim could not stand, as there was no pre-litigation settlement demand made within the policy limits (see Smith v General Acc. Ins. Co., 91 NY2d at 653; Soto v State Farm Ins. Co., 83 NY2d at 723; Pavia v State Farm Mut. Auto. Ins. Co., 82 NY2d at 454).

In opposition, CBL failed to raise a triable issue of fact. CBL submitted, inter alia, an affidavit of its vice president and corporate controller, who indicated that after AIGDC asserted exclusive control over the Eason claim in February 2007, it thereafter refused to contact Eason's counsel to settle her claim and avoid negative publicity to CBL. Notably, however, CBL's opposition did not raise a triable issue of fact as to whether Eason's counsel had made a pre-litigation settlement demand within the policy limits. As such, while it may arguably be some evidence of bad faith that AIGDC failed to enter into pre-litigation settlement discussions with Eason's counsel at a time when CBL's liability was not in doubt and the nature of Eason's injuries indicated that her recovery would exceed the policy limit, we are constrained to find that Lexington was entitled to summary judgment because CBL failed to raise a triable issue of fact as to whether Eason made a pre-litigation settlement demand within the policy limit (see Pavia v State Farm Mut. Auto. Ins. Co., 82 NY2d at 453; see also Smith v General Acc. Ins. Co., 91 NY2d at 653; Soto v State Farm Ins. Co., 83 NY2d at 723; Vecchione v Amica Mut. Ins. Co., 274 AD2d at 578). Under the circumstances, CBL cannot show that, because of AIGDC's conduct, it lost an actual opportunity to settle and, thus, any damages it asserts are based on mere speculation (see United States Fid. & Guar. Co. v Copfer, 48 NY2d at 873).

What is sometimes called "third-party" insurer bad faith depends on there having been an opportunity to settle within policy limits after the insured's liability becomes clear and the value of the plaintiff's injuries or damages will likely far exceed the policy limit. In cases where there is no pre-litigation settlement demand within policy limits, the liability insurer cannot be held liable under a bad faith theory for having failed or refused to enter into pre-litigation settlement discussions.

If a front seat passenger grabs the steering wheel from the driver and causes an accident, is that passenger an "insured person" entitled to defense and indemnification coverage from the vehicle's liability insurer? In the opinion of four out of five justices of the Appellate Division, Fourth Department, no, she is not.

While driving her leased vehicle down an interstate highway in North Carolina, for reasons that were in dispute, Shannon Doyle suddenly steered her vehicle to the left. Her front seat passenger, Amy Giacometti, grabbed the steering wheel and pulled it to the right, causing the vehicle to go off the road, become airborne, and crash among trees, injuring Doyle, Giacometti and backseat passenger, Marle Fiocco.

Giacometti sued Doyle, Fiocco sued Doyle, Giacometti and the vehicle's leasing companies (the GMAC defendants), and Doyle sued Giacometti. Progressive insured Doyle and her vehicle, but declined to defend or indemnify Giacometti. Progressive then brought this declaratory judgment action against all parties to determine its coverage responsibilities vis-à-vis Giacometti and the GMAC defendants. Meanwhile, the GMAC defendants obtained summary judgment in the Fiocco action, dismissing her complaint against them, which had alleged that the GMAC defendants were liable under New York Vehicle & Traffic Law § 388 and for having negligently entrusted the leased vehicle to Doyle.

Progressive's policy for Doyle and her vehicle defined an "insured person" in part as

any person with respect to an accident arising out of that person's use of a covered vehicle with the express or implied permission of you or a relative.

Progressive argued that Giacometti did not qualify as an "insured person" entitled to coverage under Doyle's auto policy because Giacometti had neither the express or implied permission of Doyle to use the vehicle when she grabbed its steering wheel and pulled it to the right. State Farm, Giacometti's auto insurer, argued that any use of a vehicle is with permission of the owner pursuant to the presumption in Vehicle and Traffic Law § 388(1) and that, at a minimum, Giacometti's claim that she grabbed the steering wheel to prevent an accident created a question of fact, precluding summary judgment in Progressive's favor.

On the issue of coverage for Giacometti, the four justice majority agreed with Progressive, holding:

We agree with Progressive that it met its burden of establishing that Giacometti had neither the express nor the implied permission of Doyle to use the vehicle. The evidence in the record, including the deposition testimony of Giacometti, establishes that she did not have express permission to take control of the steering wheel, and we further conclude on the record before us that Doyle did not impliedly consent to Giacometti's use of the vehicle in that manner (see Allstate Ins. Co. v Gill, 192 AD2d 1123; Electric Ins. Co. v Boutelle, 122 AD2d 332). The deposition testimony of Giacometti "that [s]he grabbed the wheel to prevent an accident does not create a question of fact on the issue of permissive use" (Allstate Ins. Co., 192 AD2d at 1123-1124). It is well settled that, "[w]here the provisions of [an insurance] policy are clear and unambiguous, they must be given their plain and ordinary meaning, and courts should refrain from rewriting the agreement' " (United States Fid. & Guar. Co. v Annunziata, 67 NY2d 229, 232; see Fulmont Mut. Ins. Co. v New York Cent. Mut. Fire Ins. Co., 4 AD3d 724, 725).

We reject the further contention of Giacometti and State Farm Insurance Company, a defendant in appeal No. 1 (State Farm), that any use of a vehicle is with permission of the owner pursuant to the presumption in Vehicle and Traffic Law § 388 (1). Initially, we agree with Giacometti and State Farm that Doyle, as the lessee of the vehicle for a period of more than 30 days, was an owner within the meaning of that statute (see §§ 128, 388 [3]). Furthermore, it is well settled that "proof of ownership of a motor vehicle creates a rebuttable presumption that the driver was using the vehicle with the owner's permission, express or implied ... Once the plaintiff meets its initial burden of establishing ownership, a logical inference of lawful operation with the owner's consent may be drawn from the possession of the operator . . . This presumption may be rebutted, however, by substantial evidence sufficient to show that a vehicle was not operated with the owner's consent" (Murdza v Zimmerman, 99 NY2d 375, 380 [internal quotation marks omitted]). Here, that presumption is inapplicable because it was overcome by substantial evidence that the use was without the permission of Doyle, and we therefore conclude that the court erred in denying that part of Progressive's motion.

The GMAC defendants argued that Progressive owed defense and indemnification coverage to them in regard to the Fiocco's complaint's assertion of a negligent entrustment cause of action, and the Fourth Department agreed:

"It is well established that a liability insurer has a duty to defend its insured in a pending lawsuit if the pleadings allege a covered occurrence, even though facts outside the four corners of those pleadings indicate that the claim may be meritless or not covered" (Fitzpatrick v American Honda Motor Co., 78 NY2d 61, 63; see Petr-All Petroleum Corp. v Fireman's Ins. Co. of Newark, 188 AD2d 139, 142). Contrary to Progressive's contention, the fact "[t]hat the claimed negligence here is based upon the entrustment of the motor vehicle rather than, for example, its condition, in no way alters the unarguable fact that the claim arises out of the ownership and use of the vehicle" (Progressive Cas. Ins. Co. v Jackson, 151 Misc 2d 479, 483, affd 181 AD2d 1035). Thus, the GMAC defendants are entitled to indemnification from Progressive for their defense of Fiocco's negligent entrustment cause of action against them.

Although Progressive apparently had afforded defense counsel to the GMAC defendants in the Fiocca action, because it had commenced this declaratory judgment and lost, at least with respect to the GMAC defendants, the majority remitted the matter back to Supreme Court "to determine the amount of reasonable attorneys' fees to which the GMAC defendants are entitled in the declaratory judgment action following a hearing, if necessary[.]"

Justice Eugene Fahey dissented on the issue of coverage for Giacometti under the Progressive policy, pointing out that "use" and "operation" of a motor vehicle are not synonymous or interchangeable, and opining that, in his view, the injuries to Fiocco and Doyle arose out of Giacometti's "use" of the Doyle vehicle as a permissive passenger of it:

In any event, in my view the issue of Giacometti's control of the steering wheel is not dispositive of the coverage issue in this case. Most importantly, the language determining whether Giacometti is an insured under the policy is prefaced by the broad "arising out of" phrase, which is absent from the policies at issue in the Allstate Ins. Co. and Electric Ins. Co. cases on which the majority relies. Moreover, on these facts, the accident, which occurred after Giacometti grabbed the steering wheel from her seat on the passenger's side of the vehicle, was arguably connected with her traveling in the vehicle, which was undeniably a use of that vehicle and a permissive one at that.

Twelve days may be the longest gap between Coverage Counsel posts to date, but I'm back to it today. My schedule has been full this past week and a half, both before and after the occupied workdays, and I spent the majority of the past two Sundays reacquainting myself with Lake Erie and its pre-spawn smallmouth bass population. I'll be doing some back-filling today and the remainder of this week.

During my momentary absence from the blogosphere, I attended my first teleconference as a new member of the LexisNexis Insurance Law Community's Advisory Board. I'm so new that my photo and bio aren't on the ILC Advisory Board's page yet. One of the things the board discussed was the reprisal of LexisNexis' Top 50 Insurance Blogs list. Stayed tuned for how readers of this blawg can nominate and vote for their top insurance blogs for the 2010 edition of that top blogs list.

The street streaking, "Eureka!" shrieking Archimedes of Syracuse (Greece, not New York) reportedly discovered the principle of bouyancy while taking a bath and trying to figure out a way to determine whether King Hiero II's goldsmith had made the king's new laurel wreath crown from solid gold or had dishonestly added silver to it:

Any object, wholly or partially immersed in a fluid, is buoyed up by a force equal to the weight of the fluid displaced by the object.

When an in-ground swimming pool is full of water, it exerts a force downwards due to gravity (weight) that is greater than that of the hydrostatic pressure, if there is any, that is exerted upwards on it by the water table. When that pool is emptied, however, the force exerted downwards by the pool is less. If the water table is lower than the bottom of the pool, no hydrostatic pressure exists and the pool does not move. If the water table is higher than the bottom of the pool and the point at which the empty pool's weight equals the water table's hydrostatic pressure, however, the empty pool becomes buoyant and the pool "pops".

That's what must have happened to the Gravinos' in-ground swimming pool, and they made a claim to their homeowners insurer, Allstate, for the damage to the pool's concrete that occurred when one end of the pool lifted out of the ground. Plaintiff had drained his pool in June to paint it, but the painting was delayed due to rain. Five days later, the Gravinos witnessed Archimedes' principle in action. Allstate denied coverage for the damage based on, among other things, a policy provision in the policy excluding damage to a swimming pool caused by "pressure or weight of water."

Plaintiffs sued and the parties moved and cross-moved for summary judgment. Erie County Supreme Court (Donna M. Siwek, J.) denied Allstate's motion and granted plaintiffs' cross motion. On Allstate's appeal, the Appellate Division, Fourth Department unanimously REVERSED the order/judgment and vacated Supreme Court's declaration in favor of the plaintiffs, noting that since this was a breach of contract and not a declaratory judgment action, the court should have dismissed plaintiffs' complaint.

Finding that the efficient or dominant cause of the loss of the pool damage was excluded hydrostatic pressure, the Fourth Department held:

Defendant met its initial burden on its motion by establishing as a matter of law that the exclusion for damages caused by "pressure or weight of water" upon which defendant relied unambiguously applied to plaintiff's loss, and plaintiff failed to raise a triable issue of fact in opposition (see generally Zuckerman v City of New York, 49 NY2d 557, 562). The experts for each party agreed that the pool had lifted from the ground because of the hydrostatic pressure in the soil surrounding the pool.The fact that plaintiff's expert stated in his affidavit that the damage would not have occurred if plaintiff had not emptied the pool does not remove the loss from the policy exclusion. The policy expressly provides that, where the damage has two or more causes, the loss is not covered if the "predominant cause(s) of loss is (are) excluded" under the policy. Here, "[t]o determine causation, [we must] look[] to the efficient or dominant cause of the loss', not the event that merely set the stage for that later event' " (Kosich v Metropolitan Prop. & Cas. Ins. Co., 214 AD2d 992, lv denied 86 NY2d 707). Here, although the drainage of the pool may have been a precondition to the lifting of the pool from the ground, we conclude that defendant established as a matter of law that the groundwater pressure was the "predominant cause" of the loss, thus rendering applicable the policy exclusion for damages caused by "pressure or weight of water" (see Jahier v Liberty Mut. Group, 64 AD3d 683, 685).

This blawg's discussion of the Javier v. Liberty Mut. Group case is here.

Water weighs 8.35 pounds per gallon, so the water in a 20,000-gallon swimming pool would weigh 167,000 pounds or 83.5 tons. Remove that weight, add five days of rain to the water table beneath a pool, and cry "Eureka!" if it pops. Just don't expect your homeowners insurer to cover any resulting damage if your policy contains an exclusion identical or similar to the ones in this or the Javier case.

Tuesday, May 11, 2010

Welcome New York Law Journal readers. If you're here from the May 11, 2010 Dachs & Dachs column and are looking for my post on the recently proposed bills amending New York's "serious injury" categories, scroll down the main page of this blog to April 25, 2010 or click here.

A tutorial on how best to use this blog, including its subscription widget, is here.

"Thompson is a member of the Senate insurance committee but over the past year and a half he has rarely introduced bills pertaining to insurance or tort matters. The overwhelming majority of bills he proposed deal with strictly local matters or environmental concerns (he is chairman of the Environmental Conservation Committee). He has introduced 22 bills so far this year." Buffalo News, Sunday, May 9, 2010

Plaintiff's daughter sustained fatal injuries when she drowned in a swimming pool located at the residence of her grandparents, where she resided with her mother. Plaintiff, the decedent's father, did not reside there. Plaintiff's decedent, her mother and grandparents were insured under a homeowners' insurance policy issued by Allstate to the decedent's grandparents. Allstate disclaimed liability coverage for defendants, decedent's mother and grandparents, under the policy provision excluding coverage for

bodily injury to an insured person . . . whenever any benefit of this coverage would accrue directly or indirectly to an insured person.

Plaintiff commenced a wrongful death action against defendants in his capacity as administrator of his daughter's estate, and he was the sole distributee identified in the complaint. Decedent's mother defaulted in the action and, following an inquest on damages, plaintiff obtained a judgment against her in excess of $100,000 for his pecuniary loss. Plaintiff then commenced this declaratory judgment action against Allstate for coverage under the homeowners policy.

This appeal presents the issue, apparently one of first impression in New York, whether an insurer is required to defend or indemnify its insureds for the wrongful death of an insured person, here, plaintiff's decedent. We conclude that the plain language of the policy in question excludes coverage for bodily injury to an insured person when such coverage would enure to the benefit of an insured person.

* * * * *

We agree with the court that Allstate's policy excludes from coverage any claim to recover for the injury or resultant death of an insured person (seeBrown v Madison, 139 Ohio App 3d 867, 870-871, 745 NE2d 1141, 1144). We reject the contention of plaintiff that the derivative nature of his wrongful death action renders the policy exclusion inapplicable. "By focusing on his independent right to bring a wrongful death claim, and in ignoring the plain language of the policy, which excludes liability coverage for bodily injury to an insured, including claims resulting from . . . death, [plaintiff] has lost sight of the relevant issue at hand, [i.e.], whether there is policy coverage that would trigger [Allstate's] duty to indemnify and/or defend the insured in the wrongful death lawsuit" (Cincinnati Indem. Co. v Martin, 85 Ohio St 3d 604, 608, 710 NE2d 677, 680). There is no coverage for the simple reason that a homeowners' insurance policy is essentially designed to indemnify the policy holders against liability for injuries sustained by noninsureds (see Brown, 139 Ohio App 3d at 871, 745 NE2d at 1144). Here, neither decedent nor her mother would be entitled to indemnification from Allstate for the injuries and death of decedent. Additionally, indemnification by Allstate on behalf of decedent's mother would result in the receipt by the mother, an insured, of the benefits of the policy in the form of the satisfaction of the money judgment obtained against her for the death of her daughter, also an insured. That result violates the plain language of the policy and thus is untenable. We therefore conclude that the court properly applied the case law of Ohio in support of its determination that an insurer has no duty to defend or indemnify its insured in a wrongful death action brought by a noninsured based upon the death of an insured where, as here, the policy excludes coverage for claims based on the death of an insured (see Cincinnati Indem. Co., 85 Ohio St 3d at 609, 710 NE2d at 680). Accordingly, we conclude that the judgment should be affirmed.

Although the decedent's father, a non-insured, was the plaintiff, because indemnification of the mother, an insured person, would "benefit" her in the sense that the default judgment against her would be satisfied, the court found that Allstate's bodily injury-to-an-insured policy exclusion -- even with its limitation to situations only where any benefit of the policy's liability coverage would accrue directly or indirectly to an insured person -- applied.

Most structure property insurance policies in New York contain a condition requiring that any suit against the insurer be brought within two years of the loss (the accrual of which period is somewhat in question now with the recent issuance of the Fabozzi v. Lexington Ins. Co. decision). But what if the insured dies during that two-year period? Does the one-year tolling period afforded by New York CPLR 210(a) apply to extend the two-year suit limitations period by one year? Yes, in the opinion of the Appellate Division, Fourth Department.

Merchants Mutual Insurance Company issued a homeowners insurance policy to Louis White, Jr., on February 18, 2005. On December 5, 2005, the insured property and its contents were destroyed by fire. On October 31, 2006, Merchants denied Mr. White's claim for policy benefits and, 19 months after the loss date, on July 5, 2007, Mr. White died. On May 16, 2008, plaintiff was issued letters testamentary appointing her as the executor of the insured's estate. Nearly 31 months after the fire loss, on July 3, 2008, plaintiff commenced this action as executor of decedent's estate, seeking to recover under the policy. The "conditions" section of the policy provided that "[n]o action can be brought [against us] unless the action is started within two years after the date of loss."

Merchants moved to dismiss the complaint pursuant to CPLR 3211(a)(1) and (7), asserting that the action had not been brought within two years of the loss date, as required by the policy. Supreme Court (John F. O'Donnell, Jr.) denied that motion and Merchants appealed.

In AFFIRMING the lower court's order, the Fourth Department, in an opinion by Justice Edward Carni, held that the one-year extension of time in CPLR 210 (a) to commence an action that is afforded to a decedent's representative applies to the standard two-year period of limitations contained in homeowner's insurance policies:

Our review of the applicable case law in New York State discloses that the courts have uniformly applied tolling provisions to the two-year period of limitations contained in policies of insurance in accordance with Insurance Law § 3404 (e). In S & J Deli v New York Prop. Ins. Underwriting Assn. (119 AD2d 652), the Second Department rejected the defendant insurer's contention that the period of limitations was a "condition precedent" and held that "[t]he toll contained in CPLR 203 (b) (5) is directly applicable to the limitations period set forth in a fire insurance policy" (id.). In addition, the First Department applied the "[i]nfancy, insanity" toll contained in CPLR 208 to the two-year period of limitations in an insurance policy (Bookstein v Republic Ins. Co., 266 AD2d 113).

We reject defendant's "condition precedent" theory inasmuch as the cause of action to recover damages for breach of contract based on a fire or a homeowner's insurance policy existed at common law and was not created by the insurance statute containing the two-year period of limitations (see S & J Deli, 119 AD2d 652; Insurance Law § 3404 [e])[FN1]. It has never been incumbent upon an insured to plead and prove compliance with the applicable statute of limitations as a condition precedent in commencing a breach of contract action under the common law against an insurer. Moreover, we perceive no indication in the language of Insurance Law § 3404 (e) indicating that the two-year period of limitations was intended to be in the nature of a condition precedent (cf. Kahn v Trans World Airlines, 82 AD2d 696, 709).

We therefore conclude that the "death toll" in CPLR 210 (a) is applicable to an action against an insurer where the policy at issue contains the two-year limitations period contained in Insurance Law § 3404 (e).

How cool is this? I can now cross becoming a member of the Mile High Bloggers' Club (Membership 2; apparently this blogger thought of it first) off my bucket list. Posting from 37,000 feet enroute from Charlotte to Denver, via this US Airways' plane's wireless connection.

Posts have been scanty this week because I've been prepping the presentation I'll be giving in Denver tomorrow morning on the use of social networks and media in insurance investigations. The beast of a PowerPoint is finally done and in my pocket on a flash drive. I'll catch the blog up now. That is, unless the guy in front of me reclines his seat MORE than the 135 degree obtuse angle it's already in (!!!), and I can no longer crane my neck backwards enough to see my laptop's screen.

By the way, do you know what the definition of an expert is?

Someone who travels long distances and has slides.

Guess I can cross that accomplishment of my bucket list, as well. Sweet.

(P.S. For those of you who, in the future, may find your way to this page via a Google search looking for the other, less academic and more prurient, club, redirect here. Insurance coverage is many things, but prurient isn't one of them. Least not to me.)

If anyone has any information or resources that may be useful to completing and delivering my presentation, please send them my way.

I don't know whether my PowerPoint presentation on this topic will be posted to RMASIU's website, but if it's not and you would like a copy of the finished product, send me an email and I'll shoot you a copy, with clickable links to my favorite peoplefinder and social media search engines.

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